Japan Output Rebounds in Sign Companies Enduring Tax Rise

Japan’s production rebounded in May, indicating that manufacturers are riding out a sales-tax increase as Prime Minister Shinzo Abe seeks to steer the economy through its aftermath.

Industrial output rose 0.5 percent after dropping 2.8 percent in April, the trade ministry said today. The median forecast of 28 economists surveyed by Bloomberg News was for a 0.9 percent increase. The government projects production will decrease 0.7 percent in June and increase 1.5 percent in July.

With the economy forecast to contract this quarter, the focus is on whether growth will be strong enough over the next three months for Abe to proceed with a further increase in the consumption levy. A weak expansion may raise the odds of fiscal or monetary support in the coming months.

“The economy is expected to be strong overall in the July-September quarter,” said Yoshimasa Maruyama, chief economist at Itochu Corp. in Tokyo.

The benchmark Topix stock index rose 0.2 percent as of 9:36 a.m. in Tokyo, extending its biggest monthly advance since November. The yen was little changed against the dollar at 101.39.

Today’s data suggest “the sector is recovering from the weakness caused by the consumption tax hike,” Marcel Thieliant, a Singapore-based economist at Capital Economics, wrote in an e-mailed note after the release.

The economy is forecast to shrink an annualized 4.4 percent this quarter after 6.7 percent growth in the first three months of the year. Economists project a 2.2 percent expansion in the July-September period.

Abe will base his decision on raising the sales tax to 10 percent in October 2015 from 8 percent now on economic data next quarter.

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